“The yields that the big four Aussie banks offer, are defensible. The 13-month yield is just above 11 percent, and that's before we gross up for franking credit, so we see that as a very significant fundamental value there,” he told CNBC on Monday.

Franking credits are a type of tax credit passed on to shareholders along with dividends.

Domestic banks particularly stand to benefit from the Reserve Bank of Australia’s move to ease monetary policy, he added.

Last week, the central bank cut interest rates for the first time in more than 2½ years, lowering its key cash rate by 25 basis points to 4.5 percent.

Economists forecast the RBA could cut rates further. Its next rate setting meeting is scheduled for December 6.

“We're optimistic that rates will come down further (and) credit growth over the next 12 months will provide further growth for the banks,” O'Hanna said.

Among the big four banks National Australia Bank (NAB), Commonwealth Bank, Westpac and Australia and New Zealand Banking Group (ANZ), O’Hanna, highlighted NAB and ANZ as his top picks.

The big four banks have a 37 percent weighting in Fat Prophets’ income fund.

“NAB has made market share gains really across the board, particularly in the business lending segment,” he said.

O'Hanna acknowledges that economic turmoil in the euro zone could raise funding costs for Australian banks, but he believes there are enough positive domestic factors working in their favor, like softening monetary policy.

“(The view that) Aussie banks have been caught up with their European counterparts is not entirely justifiable,” he concluded.